Sticky/hot inflation: June CPI core 2.6% (sticky), PPI cooler; fresh PCE accelerates to 4.1%; Hammack projects 3.3% Core PCE
Key Questions
What was the June CPI reading and what does it signal about inflation?
June CPI core came in at 2.6% and headline fell 0.4% m/m, the largest drop in four years, with the yearly rate at 3.5%. The sticky core print and fresh PCE acceleration to 4.1% YoY challenge the disinflation narrative.
How did the PPI print compare to expectations?
PPI came in cooler than expected with the largest drop in 14 months. This provided some relief but was overshadowed by the hotter PCE and sticky CPI components.
What inflation risks arise from geopolitical tensions?
Hormuz closure and new Iran war risks add supply-side energy inflation threats. These factors could further complicate the Fed's rate path amid already elevated expectations.
What are analysts saying about the Fed's policy options?
Multiple inflation paths deepen the Fed's rate puzzle, with real yields rising and BofA arguing underlying inflation remains too high. Warsh's regime-change call and a potential 2026 hike are highlighted by Yardeni and others.
Why do some view the June CPI disinflation as illusory?
Matthew C. Klein argues residual seasonality and freakish category declines make the drop misleading, reinforcing the sticky inflation view. The Beige Book noted easing across districts but AI buildout poses a new infrastructure-driven threat.
June CPI core 2.6% (sticky), headline negative m/m with largest monthly drop in four years (-0.4%) and yearly 3.5%. PPI came in cooler than expected, largest drop in 14 months. Fresh PCE print shows inflation accelerating to 4.1% YoY, directly challenging disinflation narrative. Cleveland Fed's Hammack explicitly warned of broad-based inflation and projected 3.3% Core PCE, saying businesses are asking for action. May PCE was 4.1% core 3.4%. NY Fed survey shows rising expectations. Hormuz closure adds energy inflation risk. New Iran war risk adds supply-side inflation threat. Waller highlighted core inflation concern. Warsh report cites tariffs, energy, AI. Multiple inflation paths deepen Fed's rate puzzle. Real yields rising. Beige Book confirms easing inflation across districts. AI buildout poses new inflation threat via infrastructure demand. Export prices fell 0.6% in June. Balance sheet expansion noted as overlooked inflation driver. BofA argues underlying inflation remains too high; BofA CEO warns inflation will back Fed into a corner. Crude at $80 rebuilding inflation impulse. Warsh's regime change call signals willingness to act. Industrial production miss adds to cooling narrative. El-Erian's dovish view offers counterpoint. Bond traders still expect rate hikes. Matthew C. Klein's analysis argues the June CPI disinflation is illusory due to residual seasonality and freakish category declines, reinforcing the sticky inflation view. Yardeni deep dive reinforces hawkish case for a 2026 rate hike. Fed revamps inflation tracker, a methodological shift that could affect how future data is interpreted.